Daybreak Weekend: Tesla Earnings, European Banks, Trump-Albanese Meeting

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This is Bloomberg Daybreak Weekend, our global look at the
top stories in the coming week from our Daybreak anchors
all around the world. Straight Ahead on the program, we'll
get you set for a couple of big earnings reports
from Tesla and Netflix. I'm Nathan Hager in Washington.
I'm Carolyn Headger in London, where we're looking ahead to
European bank earnings, including from Barkleys.
I'm Doug Prisner looking at how rare earths will be
a topic when Australia's Prime Minister visits the White House.
And the week ahead.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Good day to you. I'm Nathan Hager. We begin today's
program with earnings. Ninety companies on the SMP five hundred
open their quarterly books this week. We want to focus
on two of the big ones, Tesla and Netflix. Here
to get a set for what to expect from the
EV giant this week is Steve Mann, senior autos analyst
for Bloomberg Intelligence. Great to have you with us on
the weekend program, Steve. I mean, this is the quarter
where we got that record delivery number, right, was it
close to half a million vehicles sold? What's that going
to mean for the numbers you're keeping an eye out on.
Thanks Nathan. Yeah, they did have a record shipment for
the quarter on EV's but they also had a record
shipment on their battery storage business too. I mean yeah,
I mean not of surprise because look, the seventy five
hundred tax credit EV tax credit it went away at
the end of September in the US, so there was
a lot of consumer coming into the market take an
advantage of that seventy five hundred dollars credit and bought
a lot of EV. So, you know, we saw record
EV sales for Tesla. They're not alone. GM also had
a record sale fort if it's not records almost record
sales as well, So the industry really got a boost.
But you know, I think the most important thing now
is what do we expect in the coming quarters, which
is you know, a slow down.
Yeah, So what do we expect given that these subsidies
are going away? I mean, it stands to reason that
we're probably not going to see these kind of blowout
delivery figures and quarters to.
Come right, Yeah, absolutely not. You know, to two ways
that we're looking at this first and in their term.
Definitely some challenges for Tesla as well as the rest
of the EV market. You know, Rivian and Lucid to
to name a couple. You know, there's been a lot
of pull forward demand into the third quarter, so you know,
expect kind of weak earnings, uh, you know, weaker cash
flow in the next couple of quarters for these EV makers.
But long term, it's going to be an interesting market
because without the semi five hundred, you're definitely going to
have less buyers. There will be buyers, but less buyers
in the marketplace. And there are a lot of products
out there. Like in the last two three years with
the Biden administration pumping a lot of money into the
EV market, every automaker you know, rolled out new products,
expanded capacity. So there's gonna be a lot of new
EV's out there. Uh. We actually expect price competition, right,
price competition, and wouldn't be surprised there's some consolidation in
the marketplace as well. We started to see that. Uh
GM just announced they' going to book one point six
billion dollars in write offs on evs. We expect they
probably going to have to right size their product portfolio
as well.
Yeah, so we saw the new products as well, specifically
on Tesla side, in those finally lower priced models of
the Model Y and the Model three. What could that
mean for Tesla's outlook and for their margins as well.
Yeah, it you know, if you think of the flip side,
it could be an opportunity, right for Tesla. They are
the largest EV maker in terms of sales globally and
in the US, one of the biggest definitely biggest in
the US, so it's also an opportunity for them potentially
gain market share. You know, they are the you know,
one of the very few profitable EV makers in the world.
So launching those products for broaduct appeal makes sense if
you look at social media, because actually now talks about them,
you know, revisiting the earlier plans of rolling out the
Model too, which is even a cheaper vehicle, So if
they can do that, they may be able to gain
market share.
You mentioned the record for a battery storage in Tesla's
latest quarter as well. Of course, there's a lot of
ambition in this company, not just from evs but from
the autonomous vehicle side robotaxis. Where should the focus be
for investors as we get ready for this quarter to
be explained?
Yeah, I think you know, when they release earnings and
on the conference call, wouldn't be surprised that Elon Musk
will primarily focus on their AI initiatives. Right, Robotaxi is
probably the only business that we have better visibility on
driving the top line and the bottom line. We think
that's you know, that's kind of probably going to come
through in twenty twenty eight, not immediately. You know, they've
rolled out all you know, robotaxing in Texas and parts
of California. They're looking to roll it out in other states,
maybe at least two more before year end, but the
you know, you know, the financials don't really roll in
until then. But you know, Robotaxi is probably the earliest
uh uh uh, the business is going to have the
earliest impact on on their botbom Line Optimist robot. I
think it's going to be a while. There's some technical
issues behind Optimus robot. It's going to be hard to
convince uh not you know, other automakers to adopt humanoid robots.
So you know, any Optimist sales or or adoption will
probably be more of an internal uh you know, within
the confines of Tesla.
All right, well, thanks for this, Steve. As we look
ahead to Tesla earnings later on this week. That is
Steve Mann, senior autos analyst for Bloomberg Intelligence. Now let's
turn to the other big earning story we've got our
eye on this week. That would be Netflix. The streaming
giant opens its third quarter books on Tuesday, and for more,
we're joined by Geta Ranganathan, senior US media analysts for
Bloomberg Intelligence's great to speak with you, Githa. And I
guess Netflix is expecting another great quarter. I mean they've
been guiding for something like double digit revenue growth.
Right absolutely, yes. So, you know, as we kind of
look forward to netflix third quarter earnings, one of the
things that we want to highlight because Netflix no longer
discloses subscriber numbers, but the two numbers that you know
everybody's looking for, especially on the street. One is revenue
growth numbers, and as you just pointed out, yes, double
digit growth, that's what we're looking for. The magic number
for this quarter is going to be seventeen percent, and
of course again we're going to look for guidance for
fourth quarter. Consensus right now expects about sixteen percent, so
you know, double digits, high double digits, high teens. That's
kind of what we're looking for. But really the headline
for you know, the third quarter, as well as with
the second half, I think as a whole, is just
the content slate. So Netflix management themselves have kind of
referred to the content slate this year, especially in the
second half, being somewhat of an embarrassment of riches. They've
had some of their biggest titles debut on the service,
So we're talking Wednesday, we're talking Stranger Things, we're talking
Squid Game, all of their biggest hits coming aboard on
the platform this year. But what's really turned out to
kind of be an absolute sleeper hit in the third
quarter is K Pop Demon Hunters. Nobody saw this coming.
This was absolutely monstrous, huge, So we just saw five
hundred million viewing hours just in the third quarter alone.
I think by the end of this year, we're probably
going to see about a billion hours. This is their
biggest movie of all time on their service, So just
to breakout film that has really driven engagement meaningfully, and
I think we're going to see that reflection in the numbers.
So, just given how bonkers K Pop Demon Hunters was
for Netflix, is the bar really high for them? If
they don't meet the expectations that they've put out there,
is that going to put a herd on the stock?
So the one thing I think that we're going to
watch for I think three Q is definitely going to
be strong. The one number that can probably cause some
nervousness is going to be if they actually release guidance
for twenty twenty six. So last year, the first time
that they issued guidance for twenty twenty five was when
they reported third quarter twenty twenty four earnings. So the
expectation on the street is, okay, they're probably going to
give us a twenty twenty six guidance number. Again, remember
revenue for this year, the revenue growth number for the
full year. Again, that the magic word there, double digit
revenue growth, it's actually fifteen percent. Can they keep that up?
So if it comes in much lower, if it comes
in lower than I would say thirteen four teen percent, yes,
that is going to probably cause some nervousness. So yes,
talking about that high bar, all of this engagement metrics
kind of really playing into that. And then the other
metric that we're kind of looking for with Netflix apart
from revenue is margin. So this year, I think their
margin growth is going to be really strong. I think
they've already guided to thirty percent. It's probably going to
be a little bit ahead of that. They're probably going
to raise guidance. So again next year, if they're a
little bit softer on that number, again, maybe that causes
a little bit of a pullback in the stock.
What's going to be driving the margins for Netflix in
quarters going forward? Is it going to be growth in subscribers?
Is it going to be revenue from advertising?
Yeah, I'm really glad that you brought it out, because
now that they don't disclose subscribers anymore, it's a little
bit hard to get transparency. And again, just for full disclosure,
they haven't actually disclosed any hard metrics around advertising either,
so we don't necessarily know exactly what the advertising revenue is.
Of course, there have been some guestimates that it was
probably around a billion dollars and change in twenty twenty four.
That's probably going to be upwards of two billion this year.
But then you're absolutely right, we're expecting a significant ramp
up going into twenty twenty six, and that is going
to be one of the major drivers for both the
top line growth as well as you know, operating margins.
Sof for operating margin, you need strong top line growth,
but you also need content cost rationalization, and that's really
what we've seen Netflix do extremely well. So they're you know,
we're seeing revenue grow, you know, mid teens levels, sometimes
even high teens, but content costs grow only about mid
to high single digits, and that's where we're seeing this
huge jump in operating margins year after year.
And when it comes to content cost management, where is
the focus going to be? Do you think for Netflix
is it going to be on that you know, original content,
the scripted stuff, or is it going to be more
reality shows, are even more live shows.
It's going to be all of the above. So we've
seen them really do a very good job. Originals, as
you pointed out, drives majority of the viewership on the
Netflix platform. We've seen that in all of the engagement
stats that they've disclosed from time to time. That makes
up about fifty to fifty five percent of their content budget.
But you're absolutely right, they have a really nice mix.
They also have a good amount of licensed content, the
content that they get from the Disney's and the Warner
Brothers and the paramounts of the world. So they're making
very concerted investments across the board.
All right, well, thank you for this, keith A. Really
great having you on with us. That is a Githa Ranganathan,
Senior analyst for US Media for Bloomberg Intelligence, and coming
up on Bloomberg day Break weekend, we'll look ahead to
bank earnings out of Europe, how they may have been
affected by rate cuts and geopolitical risk. I'm Nathan Hager,
and this is Bloomberg. This is Bloomberg Daybreak Weekend, our
global look ahead at the top stories for investors in
the coming week. I'm Nathan Hager in Washington. Up later
in our program will look ahead to a key meeting
between Australian Prime Minister Anthony Albanizi and President Donald Trump.
But first, European banks have seen a trillion euro surge
in value since late twenty twenty two as interst rates
have come down, but that may come under pressure from
growing fears over sovereign risks in France and threat of
a new bank tax in the UK, while rate cuts
and geopolitical risks are added burdens. With the UK's biggest
banks Barclays, Nott West and Lloyd's reporting earnings in the
next few days, we want to get more from Bloomberg Daybreak,
euro banker Caroline Hepger in London.
Nathan European banks are eyeing Ball Street after a bumper
set of earnings for the third quarter. JP Morgan, Goldin
Sachs as City Group all comfortably beat estimates with a
combined profit of more than twenty billion dollars, but the
CEOs of a number of US John's did sound alarm
bells that market optimism is perhaps overblown. JP Morgan's Jamie
Diamond pointed to a pair of recent bankruptcies in the
private credit space.
Nice pleasure and say this, but when you see one cockroach,
you're probably more you know, and so we should everyone
should be four more than this one.
So Diamond's comments came amid an increasingly complex macroeconomic picture.
You've got global trade wars, tariffs, and political turmoil for
the banks to think about. So against that backdrop, lenders
on the other side of the Atlantic are also looking
to balance risks and opportunities. So how have European banks
been faring? So joining us now is Bloomberg's finance reporter,
Will Shaw and Philip Richards Bloomberg Intelligence is senior banking analysts.
Welcome to both of you. Thank you for being with me, Phil,
But can I start with you on the third quarter earnings?
How are European banks expected to fare, specifically against those
War Street lenders who've reported just in the last few days.
Yeah, so we've had all the US bank supporting and
they've actually come across quite a lot stronger than the
market was expecting, particularly on the investment banking side, some
quite hefty beats coming through on fixed income equity trading,
also quite a big return in terms of M and
A and those are also quite a head of consensus
coming through as well. But also on the retail banking
side as well, lending growth has been higher than most
people expected. A couple of wabbles on the credit quality side,
but overall they've been very strong and so the question
is how much of that is going to follow through
to the European banks and the week coming ahead. I
think Boderlanders, I think that they should follow quite similar trends.
I mean, there are obviously a lot of overlap in
terms of the investment banking space where the banks are operating.
I'm there for I think they could be fairly beats
it there as.
Well, hefty beats expected. Okay, that's interesting. Will how have
the Wall Street banks done during the ending season the
expectations then in your view for the big UK lenders,
including of course Barkley's coming up.
Yes, so I think, like Phillips says, the Wall Street
banks have really smashed it. I suppose as a technical
financial term, Morgan Stanley's stock traders sawed past expectations. They
were beating rivals on a surge and trading activity around
turbulence from Donald Trump's policies. Golden Sacks also posted record
third quarter revenue down to like a resurgence in deal
making as M and A began to resume. People now
obviously looking ahead to Barclays. Now, Barklay's are the analysts
that we take note of. They expect Actus traders to
make about seven hundred and fifty million pounds. That would
be an increase of about eight percent on the same
period a year ago. They're macro traders the sort of
tip to make about one point two billion, that'd be
up about two percent. Deal Makers looking at perhaps making
around six hundred million pounds in banking fees and under
fighting revenue again, that would be an uplift of around
two percent.
So those are the numbers we're watching out for. Then, Philip,
it's obviously been you know, the context in Europe this
fantastic four years. Interest rates have fallen and therefore you know,
you've had a good kind of tailwind for European banks.
We've seen that in the share prices. But you've highlighted,
of course that there are more threats now into the
second half of this year. What are the big challenges
for the European banks?
Yeah, I think that's fair. I mean the second is
we're on a huge run. As he's flagged, thearing up
about one hundred and sixty percent over that period. That
compared to the wider market about forty percent higher, So
a big out performance from the European Bank. But what
I want to say is they were very at very
distressed levels at that time when they first start that
run started, and where we are today, yes, we're back
at basically the highest level since the Great Financial Crisis
over two thousand and seven, two thousand and eight. So
we've had this rally, but it has really been supported
by fundamental improvements. You know, obviously industrate hikes supported it.
The economies in the better position now, credit qualities all low,
so it's not just about is that a bubble in
terms of share price, Actually the underlying earning is much better.
And you talk about the risk going forward, I think
actually some of those risks already come through in terms
of indust rate cuts. We've seen that now in both
Europe and the UK, and actually from here maybe one
more cuts in each market, but probably quite minimal from here.
So a lot of that pain has happened already. And
actually if you look at economic growth, so conditions are
still slow, but they're getting better. And certainly eclomists have
been upgrading forecasts overall, and therefore know those things could
help with the banks.
We heard a little bit of JP Morgan CEO just
about the issue with risky loans. I mean, some people
you know are concerned about this, others are not. Are
there signs of exposure amongst European banks to riskier loans?
What's the concern there in your view?
Yeah, this follows through from two big problems in the
US for Tricolor and First Brands, And the comment from
DEPM Morgan was basically that you don't often get just
one or two hiccups. Normally they come together and as
a sign of stress in the market. And what I
would say actually in the UK or even across of Europe,
we haven't really seen that yet. There's not really been
many big cases coming through. Credit quality may actually very
strong a cost the sector, but what I would say,
these are well below normalized level the current chargeoffs, so
they will gradily rise and there will be some negatives,
but overall, if you look at on a longer term perspective,
actually credit quality means very strong for the banks.
Hmm.
Again, we'll want to bring you back in on the
UK banks and on Barkley's. I mean, you focus on
Barklay's and what they're doing in lots of detail. And
I did also think that the stories around Barkley's and
their expansion in the US is very interesting. I mean,
they're spending what a billion dollars on the refurb of.
The New York Trading It seems enormous, doesn't it. Yeah,
like you say, they're preparing to spend at least billion
renovating their skyscraper, which is in New York's Times Square.
They'll begin construction on that tower in the middle of
next year and it's currently in the design phase and
it's expected to wrap up in about twenty thirty. I
think a lot of people were surprised at the sheer
scope of the expenditure there. Barclays is obviously Britain's investment bank.
It's big.
It's big here. It's not always as visible in the
US as perhaps some of the other rivals over there,
the Big Five, Goldman's, City Group, Morgan Stanley, etc. And
I think it was really interesting to see them put
their money where their mouths are and show just how
committed they are to the US market with such an
enormous expenditure there.
Well, just thinking about that, if Barclays is the UK's
investment bank. The policy outlook I think is very interesting, Philip.
We've got the budget coming up in November and there's
been plenty of talk not just of deregulation and of
things like changing the ring fencing rules for banks in
the UK, but also the possibility of a bank win
full tax on the chance of rachel rees. What do
you think about that?
Yeah, it's a bit of a contrast, do isn't it.
I'm giving one hand and take away with the other.
So promises of deregulation to match the US which are
obviously the whole that's the main word in the US
at the moment. I'm as supportive, and as you say,
it was less in terms of the ring fencing that
could release capital for the banks, it could lead to
a reduction operating expenses, so they were positive. But then
on the flip side, you know these banks are now
obviously in a much more profitable position, you know, fifteen
percent plus profitability of return on equity for the largest
UK banks, and that's obviously quite attractive to a chancellor
who's struggling to raise cash.
I suppose. Yeah, shall I ask you what the odds
are do you think of her actually doing it or not.
Maybe this is impossible, it's important to say.
I mean it's been mentioned, has been widely talked about
in the market, but the chance is obviously keeping her
cards coach of chest as it were, and therefore she's
not a really ending yet. We have seen it across
a number of other European markets, so it wouldn't be
out of the blue. We've seen in Poland, we've seen
in Italy. So yes, it's possible, but who knows.
Oh yeah, so wind full taxes people might be thinking
about that in the industry. Well, well in terms of
other things then that are happening on the banking front
and trying to beef up trading. That's the other thing.
I mean that the US banks are so good at that,
and does the UK have something to rival that, You know,
if maybe there is a wind full tax coming, is
there going to be a big pot two tax?
Yeah.
So Adil Khan, who's global head of markets at Berkeley's,
you know, he's been making a bit of a concerted
push into macro trading this year. They've hired more than
a dozen senior macro traders as it looks to make
the most out of all the turbulence in the bomb
market stemming from the Trump administration. So they've been hiring
people from the likes of JP Morgan, Millennium, Nomora, Morgan Stanley.
They're all big names and it's essentially part of the CEO,
Venkat's three year plan to boost returns across the investment bank.
He's identified priority areas which include European rates as well
as derivatives and securitized product training. So yeah, they do
seem to be really flexing their muscle in this area
at the moment.
And I think no conversation on any topic Frankly and
finance or banking is without the AI factor. Artificial intelligence
and banking so interesting. You've also reported on Berkley shifting
some of its top executives to try to lead an
AI push. What did an AI push look like for Barkleys.
Well, I mean all banks obviously are thinking a lot
about AI at the moment, what it means for speeding up,
creating greater efficiencies, thinking perhaps about what it might mean
for headcount going forward. Evident AI, which is a company
which tracks performance in AI of different banks, it doesn't
Frankly rate Barklays particularly highly I would expect Barkleys to
be looking around slightly nervously at the other Wall Street
banks and seeing what they're doing. You know, are they
at risk of falling behind. They're thinking about areas such
as generative AI can be used in parts of the
trading floor to make things more efficient. They've also promoted
Antwoinette O'Neil to group Chief Information Officer in charge of
areas including AI strategy. So they are on this interesting.
I think we should also put it into context. And
listening to Karen Ward also of JP Morgan Asset Management,
of course she's their chief market stratus. He was speaking
to us in the last few days on Bloomberg Radio,
I just thought this was really a great nugget that
was so interesting about AI and whether or not it's
going to benefit the UK or not. This is what
she had to say.
The thing I will say with conviction is if AI
delivers productivity benefits, the UK will benefit. One of the
things in markets at the moment I find very hard
to make sense of is the idea that the tech
giants will grow their earnings at twenty percent forever more,
and that's why you pay thirty times earnings for them,
but yet corporate, Global Corporate is going to have earnings
growth of you know, low single digits. You know that
can't make sense.
Yeah, absolutely, Thank you so much for both of you
for joining me. Really appreciate your views. That is a
Bloomberg's finance reporter, Will Shaw and Philip Richards Bloomberg Intelligence
is senior banking analyst. We will have full coverage and
analysis of the UK bank earnings and European bank earnings
in the days ahead, including Berkley's quarterly earnings you out
on the twenty second of October. Also, we'll have Nat
West and Lloyd's to bring you on Bloomberg Radio. I'm
Caroline Hepge here in London. You can catch us every
weekday morning here for Bloomberg Daybreak Europe, beginning at six
am in London. That's one am on Wall Street.
Nathan, Thanks Caroline. And coming up on Bloomberg Daybreak weekend,
Australia's Prime Minister is set to meet with President Trump.
What implications could that have for the Australian economy? More
on that next. I'm Nathan Hager and this is Bloomberg.
This is Bloomberg Daybreak Weekend. Our global look ahead at
the top stories for investors in the coming week. I'm
Nathan Hager in Washington. Australian Prime Minister Anthony Albanizi will
be in the nation's capital in the week ahead to
meet with President Trump. For a preview, let's get to
Doug Krisner, host of the Daybreak Asia podcast.
Nathan, several issues will dominate the conversation when Albanizi visits
the White House. Perhaps the most important topic critical minerals.
For a closer look, I'm joined now by Bloomberg's Paul
Allen in Sydney. Paul, thanks for helping me preview the meeting.
You and I have talked in the past about Australia's
vast reserves of rare earths. If you had to look
at a potential deal between the US and Australia where
rare earths are concerned, what might it look like.
Well, there's certainly a lot of speculation around the stog
the prospect of a deal, around critical minerals, because we've
heard President Trump talking in the past about ideas like
well where maybe we could take over Greenland, or involvement
in Ukraine, and at the core of a lot of
these statements is these countries critical mineral reserves. In Australia,
depending on how you slice and dice, it has either
the largest or the second largest critical minerals deposits in
the world. But the limitation here is the refining of
those deposits. Australia's got the minds. It certainly has the
scope for plenty more, but all of the processing happens offshore,
mostly in China. Some of it happens in Korea as well,
So any discussion around a potential deal likely to focus
in on how these minerals get processed. And there's been
some speculation in the media that there could be some
sort of deal with the US and the range of
seven to eight hundred million dollars, but beyond that we
don't know anything. The government's been very tight lipped about this,
which again leads to future speculation that we very well
could see something get announced when Anthony Albanesi meets President Trump.
So, Paul, what is preventing Canberra from building up refining
capacity in Australia when it comes to the processing of
rare earths.
Certainly the political will exists. I think the question is
more a commercial one. I can give you an example
of one company. It's a small company called Australian Strategic Minerals.
It's seen a very healthy run up in its stock
price on the ASX. So this is despite the fact
that it doesn't actually have a mine in Australia. For
as long as I can remember working for Bloomberg and Australia,
ASM has been talking about starting a mine near a
town called Dubbo in New South Wales. It's still about
to start its pre feasibility stage, so it's taking a
long long time. There's certainly a desire to get this done,
but critical minerals processing very energy intensive. It generates a
lot of toxic waste as well, so putting together these
things seems to be the major hiccup. The biggest critical
minerals mine are listed on the ASX as Linus, but
it does all the bits refining in Malaysia, but it
does have a mine here in Australia. So it does
speak to this broader problem of the cost, the pollution,
of the regulation of getting processing underway in Australia.
President Trump was saying earlier that the US is in
fact in the trade war with China. How is this
being viewed in Australia right now, the tension between Washington
and Beijing.
It has forever been a very very difficult type grope
for Australia to walk because on the one hand, China
is Australia's largest trade partner by some considerable distance, and
it was not that long ago when Scott Morrison was
Prime Minister that the country was reeling under trade strikes
from China for all sorts of things from coal to
wine to bali. And when the new government got elected
here four years ago, the Albanese government, that was seen
as something of a reset, and those trade strikes have
since been wound back and the relationships improved. But it's
well known that China is no fan of the Aucas
Agreement between the United States and the United Kingdom. The
United States is Australia's most important ally. The relationship there
is very very close as well on a diplomatic level.
We heard from the Prime Deputy Prime Minister Richard Marles
saying that no country is closer to the US than
Australia in terms of how we engage in the level
of trust that is there. So navigating that tightrope, particularly
when your closest ally is calling saying it isn't a
trade war with your closest trading partner. It's a really
difficult foreign policy balancing act.
Paul, I'd like to pivot to another area of importance
for the alban Eze visit to the White House, and
that would be the Orcus Defense Pact. I know this
is an area where there has been a great deal
of tension and I think things are still simmering a bit.
Can you give me some context here and bring me
up to speed on where this conversation is currently.
Domestically, at least there is bipartisan support in Australia for
this defense Pact. It was initially announced by Scott Morrison,
Joe Biden and Boris Johnson, or it might have been
Rischi Sunak. It's hard to keep track of what's been
going on in the UK sometimes, but that was a
liberal government that announced that policy in Australia. Since then,
we've had a change of government to a labor government
and that Defense Pact is still in place, so politically
at least it's iron clad. Of course within the political parties,
there is some distaste for it within Australia also, as
you can imagine there are significant segments of the public
that aren't in favor. But for Australia's part, this is
going ahead. Billions of dollars have already been made in
down payments to the United States to improve or build
up its shipbuilding capability. But in terms of the relationship
between the three partners in this pact, I think that's
where the tension's really been coming in because, of course
the US, under the eye of Albridge Colby, has been
running a review into this, and it's understood certainly with
an Australia that mister Colby is somewhat of an orcust skeptic.
Now the British Prime Minister kir Starmer has been trying
to calm everybody down. He's a supporter of Orcus and
he says, look, when I came to power, we also
had a review. It's quite natural, you know, the Trump
administration's back in power in the US, of course they
want to have a review. Well, there wasn't a review
in Australia when the government changed, but that might be
illustrative of being a bipartisan policy. But there's certainly nervousness
now in Australia that Look, we've made these darm payments.
We're committed to this plan. We need submarines, please don't counsel.
So will the Albanezy visit bring a sense of closure
to this chapter or is the conversation likely to continue
before a final decision is made.
We would find out very soon, and there's a degree
of optimism on the Australian side. The Deputy Prime Minister,
Richard Miles was in the United States back in August
to really lay the foundation and the groundwork for this visit.
He met with JD. Vance, He met with Marco Rubio
and Pete Hegseth as well. There is a photo of
them altogether smiling, and Richard Mole says, look, the group
shared only positive words about ORCUS, so he's confident that
it is going to go ahead. Anthony Albaneze's actually on
holiday this week. He's having a week off for the
first time since he was one reelection, but has understood
that he's taken a lot of homework away with him
on holiday to read up on this and work very
hard diplomatically to make sure that this proceeds.
Paul, I'm going to change gears on you once again
because I know you spent several days last week at
the A and Z Investment Conference in Sydney and you
had quite a few conversations there, in particular the talk
you had with the Assistant Governor and Chief Economist at
the RBA, Sarah Hunter. I'd like to play a portion
of that interview and I was hoping that you might
help us set it up.
Absolutely. This was at the City Australia and New Zealand
conference that's organized by City and there is always a
range of fascinating speakers there and it was really great
to be able to talk to Assist Governor and Chief
Economist Sarah Hunter at the RBA because it's going to
be a very important couple of weeks for the Reserve Bank.
We're going to have third quarter consumer prices come out.
We only get consumer prices quarterly in Australia, and we've
got inflation back inside the RBA's two to three target band,
but the Central Bank is still taking this very slow
and cautious approach towards easing. It left rates unchanged this
last meeting and the next decision is coming up in
the first week of November. So Sarah Hunter, I was
asking her about inflation, and you know she was expressing
caution again that some pockets are remaining stubbornly sticky.
We've had now two months of the monthly indicator for
the three months of the September quarter, and there's just
a couple of categories a look like they've come through
a little bit stronger than we are anticipating. The first
of those is housing, so that's the amalgamation of rents
and then particular new dwelling construction costs. And the second
is market services, and those ones are particularly important because
they are core components of CPI. They will come through
in the trim mean and so we're just monitoring those two.
But given that they've as say, they've printed through a
touch stronger than we expected, we think that that will
then show up in that full quarterly print that we
get at the end of October.
So how much weight do you think the board is
going to be placing on there before deciding its next move?
I mean, all data, masses, all data is important. Obviously,
inflation data is very important because it's part as core
to the mandate of US keeping inflation in that two
to three percent target band on an ongoing basis. So
that definitely it's going to feature. Of course, we are
also as part of the November meeting, will be publishing
on the day of the meeting itself our updates and
forecasts in our November SMP, so they'll also get that
information as well. Obviously everyone else will too, and that
will give you a real sense of how we've read
the data, whatever it turns out to be, and what
it means for the outlook.
Yeah, I want to talk about a forecast a little later,
but just circling back to that point that you made
about house prices, and this is something we typically see
when we're in an easy cite all that house prices
tend to go up, often as an impact on rents
as well. So what are the recent pickup telling you
about getting inflation nect target?
Yeah, well, so how surprises specifically? Of course they're not
directly in the CPI, but they are one of the
first typically domestic transmission channels for monetary policy. So it's
not a surprise that since you know, we started cutting
rates in February, we've seen a little bit of a
lift in the momentum in the housing market and that's
come through in prices and then we'll expect to see
that transmit through into new dwelling construction activity, so you know,
the viability of projects improves and lifting demand for dwellings,
and that will come through into construction over the forecast,
and then also it'll flow through a little bit into
consumer spending as well. We're really monitoring that channel and
thinking about what that then means for inflation. We're not
surprised that we've seen the pickup because we've seen it
before in cutting cycles, so what we've seen isn't out
of line with previous periods, but obviously we're monitoring it
and it's really for the board. What they're really focused
on now is, you know, keeping inflation around about the
middle of the target band, particularly that underlying trim mean metric,
because that's our best lead for where headline inflation will
be over the medium term.
How much confidence did you do you have that inflation
will be in the midpoint of that target ban by
twenty twenty six.
Well, look, forecasts, you know, inevitably you get things a
little bit wrong at least sometimes you get them quite
a lot wrong. And so that's the job for me
and my team is really looking at what's happening, updating
our forecasts, taking on the new information, and taking on
what's happening around the world as well and what that
actually means for the outlook. But obviously that's very much
what we're trying to achieve. That's what we want to achieve.
We've got to a point now where obviously we had
that trim mean inflation was two point seven percent in
the Dune quarter, and you know, the labor market have
been we think relatively stable in recent months.
We really would like to keep it there, you.
Know, trim mean around the middle of the target band
headline eventually there too, and the labor market stable. But
we've got to respond to what the data tells us
and what else might be happening that we didn't foresee.
And you can always get surprise shop. So that's the job,
and you're forever looking forward and things are always changing.
But I hope that I can come back in a
year and that's what we've achieved.
But let's see, all right.
That was the IBA's chief economist and Assistant governor there,
Sarah Hunter. She was speaking with me at the City
Australia and New Zealand conference and it was interesting Doug,
because I was also speaking to the City Australia CEO
Mike Woodruff. For his part, he thanks the ABBA is
done with its easing cycle for now three point six percent.
That's the end of it.
Paul. I was noticing that Ted Securities was saying the
economic data that will be released over the next couple
of days for Australia may be stronger than expected. Paul,
thank you so very much. Bloomberg's Paul Allen joining from Sydney.
I'm Doug Prisoner. You can catch us weekdays for the
Daybreak Asia podcast. It's available wherever you get your podcast.
Nathan, Hi, Thanks Doug. And that does it for this
edition of Bloomberg Daybreak Weekend. Join us again Monday morning
at five am Wall Street Time for the latestun markets,
overseas and the news you need to start your day.
I'm Nathan Hager.
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